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Why Facebook Wants You to Have More Friends

Like a kind of social Ponzi scheme, the secret of social media is attracting more and more friends — to leverage more and more friends.
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We are often bombarded by friend recommendations on Facebook. The geniuses behind online networks care about the health of our "social networks." There is an intuitive reason behind them pushing friend suggestions: The incentive to contribute/participate in an online social network increases with the size of the network, and that ultimately translates into revenue.

Online social networks are built on user-generated content. Without this content, these networks are the equivalent of dying blogs (or MySpace). That said, Facebook faces the (potentially impossible) task of keeping its users engaged and active. Account holders have lives outside of Facebook, what social scientists call opportunity costs, so these social networks need to incentivize participation short of paying people. What better way than to give us a large captive audience of acquaintances, colleagues, classmates, friends and family to share our content with.

A forthcoming American Economic Review article by Xiaoquan Zhang and Feng Zhu demonstrates the importance of group size as an incentive to contribute by using a clever natural experiment of Chinese Wikipedia blockages by the government of China. The researchers' analyzed the number of article additions by each contributor — drawing only from those not directly affected by the block — before and after major blockages.

As you may guess, individual contribution falls when group size drops. This fall is especially pronounced for contributors who are considered to be "sociable," measured by their participation levels in discussion boards and user pages. Sociable contributors enjoy the most utility from participating, so it's understandable that their incentive to contribute falls as their captive audience falls.

In fact, there could be multiplier effects associated with social network size. Generating more content will not only cater to your existing network, but may induce others to form links with you. A recent NET Institute working paper by Reto Hofstetter, Scott K. Shriver and Harikesh S. Nair verifies this intuition: The number of social ties increases content generation, and content generation has a positive impact on forming social ties. The researchers go one step further and show that there are positive returns to investment associated with policies that encourage network formation. To some extent, their research justifies the prevalent use of "friendship recommendations" used across most social media.

We even see this pattern in Twitter use in the 111th House of Representatives. Using the same data as a well-publicized study by Feng Chi and myself ("Twitter in Congress: Outreach vs. Transparency"), I can crank out a positive correlation of 0.72 between the number of Tweets and followers per day. Although the direction of causality is ambiguous, what's clear is the relationship between user content generation and group size. Not surprisingly, Twitter has taken a cue from Facebook and is now also an active "follower pusher."

Social media outlets obviously benefit from advertising revenue as their active membership grows. Less talked about in the media and academia is the benefit associated with information. The information contained in Facebook and Twitter is incredibly valuable for marketing research. For instance, Twitter mentions predict quite accurately how well a movie will perform. Now imagine if someone uses the Twitter "mood" of New York to predict stock movements. Exploiting this potential behavioral bias is not that crazy of an idea, as stocks tend to do well when New York is sunny.

People seem to enjoy providing free content to these online social networks, while the network providers seem to enjoy the profit from exploiting these chatty groups. The only ones who should be disgruntled are those who employ or are married to these online socialites, as social media is undeniably a huge time waster.

Luckily — and ironically — you need not go further than a blog to find out how to avoid wasting time on Facebook and the like.